Ted Simons: To encourage job creation, state lawmakers are considering a bill that gives tax breaks to companies meeting certain capital investment and employment thresholds. Here now to talk about the bill is Barry Broome, president and CEO of the Greater Phoenix Economic Council and Farrell Quinlan, state director for the National Federation of Independent Business. Good to see you both here.
Barry Broome: Thank you.
Ted Simons: All right, Barry, why is this idea of tax credits for new and expanding businesses, why is that a good idea?
Barry Broome: A couple things. First off if you are going to rebuild the economy your economy has got to be about having a strategy. And here in Arizona one of offer challenges is University of Arizona just came out with a report that downgrades our recovery beyond 2015, and states that in 2014 Arizona will still have 8% unemployment. The way you build out of this economy is through a broad-based strategy and part of that is attracting and driving capital intensive industries. Arizona's wealth will come from export industries. And competitive states and other markets that we compete with offer comparable opportunities and Arizona needs to compete for industries like defense, aerospace, semi-conductor and, of course, doing a broad based way which is what 1041 does.
Ted Simons: Needed for Arizona to compete?
Farrell Quinlan: I agree with everything he said except for that very last part, which says that that's what 1041 does. In terms of a broad base, we saw that in the jobs bill that was passed earlier this year. House bill 2001 which lowered property taxes for everybody on the business side. It lowered the corporate income tax and included a number of other more targeted incentives that I am sure Barry could talk about, but that was the approach that you just described. That’s very broad-based. There are no winners and losers in the fact that new people coming in or incumbent businesses are all treated the same. The problem we have with 1041 is that it's in a way, it's a robbing Peter to pay Paul. It's shifting property tax burdens from the new folks coming in to the folks who already have been here for most cases decades.
Ted Simons: Go ahead, please.
Barry Broome: There's a couple of things. First off, this I think is one of the mistakes we have made in Arizona. You don't do one instead of the other. The Greater Phoenix Economic Council with NFIB endorsed 2001. Part of your strategy has to be how do you bring broad based tax strategy online? The budget and the price tag those benefits don't really occur until 2018 and Arizona stays in a recession for another 15 without any policy achievements helping us with California companies. There's two, one mistake or misnomer that I would say for Farrell's statement, this does not have a property shift clause. This only provides a reduction and net new investment. It doesn't take existing investment or existing buildings off the tax rolls. And that's why we have the support of the league of cities as well as business leaders because it's only on new investment and that's why there's no fiscal note on 1041 in the current format.
Ted Simons: Farrell's idea of robbing Peter to pay Paul, the idea of picking winners, the state should not be in the business of picking winners? How do you respond to that?
Barry Broome: There's a couple of things. I got a kick out of that when I heard. In Arizona, there's no robbing Peter to pay Paul because Peter's house has been foreclosed on and Paul is unemployed. We are leading the nation in bankruptcies, foreclosures. This is about jobs for Arizona. We don't represent business. We are a business leaders. We represent what's good for the economy. And this does not have an industry strategy in it. So it really is any industry. Any industry that makes the investment and creates the job and it mirrors exact same program that the tax credit has in the governor's package. So it isn't -- and it's provided for Arizona businesses.
Ted Simons: How do you respond to that?
Farrell Quinlan: The problem business it -- it does create a tax shift especially on the secondary side for bonds and overrides. When you expand the size of the property tax base on that, there will be a shift. And it's significant shift. You have got right now businesses pay at a 20% assessment ratio. A homeowners are at 10% assessment ratio. This would take businesses all the way down to 5%, the new guys. Right across the street could be the same exact type of business, with the same profile who has been in the community for decades, been supporting the community, paying property taxes, supporting the schools, the Little League, all that, and they are paying four times as much in terms of property taxes and the new guy that comes in who has been getting these subsidies.
Barry Broome: Here's first of all of businesses are going to the same opportunity. And when you have to create 300,000 jobs in three years just to get parity you need to build a strategy on all businesses and all strategies. The other part of that, that just as necessarily being talked about is what's going to make us effective? House bill 2001 we are last in the mountain west region in our position for industry. And we remain last clear up until 2018. Which at that time we only pass California. When you take an economics development program like invest Arizona and add it to the complimentary tax based policy, Arizona goes to third in the mountain west region in 2018 because of the leaderships work on House bill 2001, with become the number one market in the mountain west region and that's what this is about. This is about getting Arizona in the number one position and as far as targeted property reclassification goes there's a reason why Intel has invested $16 billion in Chandler. Look at the announcements occurring in Arizona now, for solar, up to 48,000 jobs. They are all getting a special tax treatment on that capital investment or they can't make it in Arizona.
Ted Simons: Do you have to play this particular game to get these particular industries? Something like aerospace and defense, when you got the Oklahoma’s of the world and other states throwing all this business around, can we afford to sit around and watch?
Farrell Quinlan: Can we afford to play in that game? That’s another question. Are we actually real players in this? Are our incentives sweet enough? The question is, what really brings sustainable growth, not just chunks of jobs in the hundreds or the low thousands but the 324,000 jobs that have gone away since December of '07. We need to do things that impact all businesses and create a climate that will have people feel comfortable investing their money. The great thing about the original jobs bill was that it locked in some certainty about future tax rates and that they’re coming down. Especially with our budget deficit. There's a lot of uncertainty. How is that budget deficit going to be shrunk? And I think that will have a huge impact even though the rates themselves won't be coming down for until after 2016.
Ted Simons: But doesn't this bill basically say that's great, but we need to do something now? Isn't that what the focus of this bill is? We can't afford to wait around for the next session --
Farrell Quinlan: The problem with it, is that what it does is it takes the, it shifts the burden for paying taxes to people who have already been here who have already been suffering through this recession, a lot of them had to cut back, they have already made their investment. And they have stuck it out. And they are asked to shoulder the burden of new people coming in who are basically shopping around for the best deal. That's hard. And it's not just businesses. It's homeowners, too, who are going to be asked to shoulder this shift.
Ted Simons: The idea, some critics are saying this basically subsidizes jobs that would have been created anyway. How do you respond to that?
Barry Broome: We are 48th in job performance right now and 43rd in personal income and the University of Arizona is projecting us, which the state forecast from projecting us to be at 8% unemployment until 2014. We have looked in the last two and a half years there's not been a single investment of $5 million in the valley without a class 6 treatment. And those have been the renewable programs, the G Platt which is what cancer treatment centers of America got and Intel and the companies that are going to be getting this primarily 75% of this benefit is going to go to Arizona companies that are already here because you have companies like Honeywell and Boeing that aren't making investments in Arizona and they are making them in the south. The southern states are giving Honeywell, Boeing, and Raytheon a chance to compete globally by locating in the south. That's the largest single industry cluster in Arizona, aerospace. We do this for Intel, we did it for first solar but Boeing and Honeywell and Raytheon are not eligible for that type of benefit. Those are the capital intensive industries and by the way -- let's talk about wages. They pay $72,000 a year. Arizona is sitting on a statewide wage of about $29,000. And if you are going to bring in those kind of jobs, and move away from retail and construction, and housing, and industries that have not proved to be sustainable, you are in competition for them and you don't get to pick your competitive environment.
Ted Simons: There are requirements for median age, medium wage, I should say and all sorts of other things. Number of jobs and the number of positions and such. Why isn't that good enough?
Farrell Quinlan: Well, it may ultimately be unconstitutional. There is a pretty strong body of legal opinion that shows that treating like taxpayers differently is something the courts won't abide so we will lure all those companies in, have them make big investments and pull the rug out from underneath them? That’ll really hurt --
Barry Broome: But Intel won that case. Someone brought the uniformity clause up with Intel and they lost. Uniformity clause basically says this in the court case the state of Arizona has broad sweeping capabilities to use a tax tool to create jobs. That's what upheld Intel and by way the way Arizona used other tools like this for the last 25 years. It's more than in compliance.
Ted Simons: Good discussion, gentlemen. Thank you for joining us.